The Internal Revenue Service (IRS) lets small businesses get many tax breaks that you cannot get if you do not have a business. Knowing what these tax deductible expenses are and claiming them can lower your taxes significantly and let you keep more of the profit. Your business type may affect some tax deductions. Most of them can be claimed on Schedule C.
Keep Accurate Records
Claiming business tax deductions means that you will need to have good financial records. Receipts are very important and will need to be kept to verify the deduction if your business should ever be audited.
If you rent property for a storefront, factory, office, etc., you can deduct all of the cost. This includes utilities, cell phone service, and more. The exception is if you are going to get any equity or the title to the property – then you cannot claim any of it.
You may be able to get a home office deduction if space is solely used for your business. Doing so, however, may result in an audit. You can calculate the percentage of space used for the office and this may enable you to also deduct an equal percentage of your mortgage, insurance, depreciation, and repairs.
Many types of insurance for your small business are fully deductible. You can deduct the cost of a business owner’s policy, business continuation insurance, flood insurance, vehicle insurance (if used for your business), malpractice, and health insurance for your employees. Personal health insurance is deducted on your personal tax forms.
One expense that is sure to cost is going to be your marketing dollars. There are many ways to market your business and the good news is that you can deduct all of it – including advertisements on radio, TV, billboards, Internet marketing, mail-outs, and many more.
Equipment and Tools
Your office or store needs to be ready for business and operational. Many of your office expenses are deductible, whether you need office furniture, shelving for your store, equipment, or electronics, etc., much of it is tax deductible – including some of your startup costs. The cost of rental equipment is also deductible. Some of it will qualify for depreciation, letting you spread the cost over three or more years. Software that you need to run your business is also deductible.
Many of your vehicle expenses may qualify for a mileage tax deduction but it will depend on how the vehicle is used. When a vehicle (car, van, pickups, or panel trucks) is used for business purposes you can deduct up to 58 cents per mile for 2019 taxes (reduced to 57.5 cents per mile for 2020 taxes). If you have a vehicle that is costly to use, such as an older one, you may get a bigger deduction if you use actual cost and repairs.
Hiring professionals to help your business is all deductible. You may need to hire an accountant, a lawyer, a business consultant or a mentor. It is all tax deductible as long as the rates are considered reasonable. When you hire freelancers or independent contractors, you will need to give them a 1099-Misc if they receive more than $600 while working for you.
If you set aside money for your employees’ retirement that provides tax advantages, you can deduct that money up to the legal limits. You can also deduct the money that the business pays into your retirement account.
Taking courses that are related to your business, such as required continuing education courses, or to improve related job skills are all tax deductible. If you provide education for your employees that are job-related, you can deduct that, too.
The IRS can make changes to business deductions at any time. If you do your own taxes, be sure to stay informed about new changes for the best tax breaks.